Federal Estate Tax Exemption 2026: The $15 Million Threshold Explained

If someone died in 2026 and you're trying to figure out whether their estate owes federal estate tax, the answer for nearly every family is no. The One Big Beautiful Bill Act, signed into law on July 4, 2025 (Public Law 119-21), set the federal estate and gift tax exemption at $15 million per individual. For a married couple using portability, the combined protection is $30 million.

Here's what that means in practice, what executors are actually required to file, and the one situation where you'll want to file a return even if no tax is owed.

What the 2026 Exemption Actually Covers

The federal estate tax is a tax on the right to transfer property at death. It applies to the gross estate, which is broader than what passes through a will. The gross estate includes everything the decedent owned or had an interest in at the date of death:

• Real estate (market value at date of death)
• Bank accounts and brokerage accounts
• Retirement accounts (IRA, 401(k), pension)
• Life insurance proceeds, if the decedent held ownership rights over the policy
• Business interests
• Any joint property where the decedent had an ownership share

If the total of all those assets, combined with any taxable gifts made during the decedent's lifetime above the annual exclusion, is under $15 million, no federal estate tax is owed and Form 706 is not required — unless you're electing portability, which is covered below.

The $15 million exemption replaces the prior threshold of $13.61 million that applied in 2024. The OBBB Act made the increase permanent and inflation-indexed, ending the uncertainty about the pre-OBBB "sunset" that would have dropped the exemption back to roughly $7 million in 2026.

The Annual Gift Exclusion: $19,000 in 2026

The federal estate and gift tax exemption works in tandem with the annual gift exclusion. For 2026, the annual exclusion is $19,000 per recipient. Gifts up to that amount to any individual in a calendar year don't count against the lifetime exemption.

Gifts made above the annual exclusion during the decedent's lifetime reduce the available $15 million exemption dollar for dollar. If the decedent made $200,000 in taxable gifts over their lifetime (above annual exclusions), only $14.8 million of the estate tax exemption remains available at death.

This is relevant to executors because Form 709 (the gift tax return) filings from prior years must be located and provided to the estate's tax professional. Undisclosed prior taxable gifts can create unexpected federal estate tax liability even when the current estate value looks modest.

Who Must File Form 706

IRS Form 706 — the United States Estate (and Generation-Skipping Transfer) Tax Return — is required in two scenarios:

First: The decedent's gross estate plus adjusted taxable gifts exceeds $15 million. In this case, Form 706 is required and federal estate tax may be owed. The return is due nine months from the date of death, with a six-month extension available (Form 4768), though any tax owed is still due at the nine-month mark.

Second: The executor wants to elect portability for the surviving spouse. This is where Form 706 becomes strategically important even for estates with no tax liability.

Form 706 preparation costs significantly more than a standard tax return — expect $2,500 to $6,000 or more depending on the estate's complexity. For estates with business interests, agricultural property, or complex investment holdings requiring date-of-death valuations, fees run higher. That cost is generally deductible as an estate administration expense on the fiduciary return.

Portability: Why You Might File Form 706 Anyway

Portability allows a surviving spouse to inherit the deceased spouse's unused federal estate tax exemption. The official term is the Deceased Spousal Unused Exclusion, or DSUE.

Here's how it works: a person who dies in 2026 with a $3 million estate has used almost none of their $15 million exemption. If the estate passed entirely to the surviving spouse under the unlimited marital deduction, $15 million of exemption went unused. By filing Form 706 and making the portability election, the executor transfers that $15 million DSUE to the surviving spouse. Combined with the surviving spouse's own $15 million exemption, they now have $30 million of combined protection for future transfers.

Without a portability election, that $15 million simply disappears at the first spouse's death.

The portability election must be made on a timely filed Form 706. "Timely" means within nine months of the date of death, with the six-month extension available — so up to 15 months post-death in total. The IRS has also provided a streamlined late portability election procedure for estates that miss the deadline, available up to five years after the date of death, but the standard filing deadline should be the target.

For Alabama executors handling the estate of a spouse with a modest estate — say, $2 to $10 million — the decision to spend $2,500 to $4,000 on Form 706 preparation purely for a portability election is a judgment call based on the surviving spouse's current and projected net worth and the trajectory of the estate. Given the value of locking in an additional $15 million in future exemption, it's usually worth doing for families with meaningful assets.

The Step-Up in Basis: Separate From the Estate Tax

One of the most financially significant provisions in estate law has nothing to do with the estate tax itself. Under IRC Section 1014, assets inherited from a decedent receive a new cost basis equal to their fair market value on the date of death. This is the step-up in basis.

The practical effect: if a decedent bought a piece of Alabama real estate in 1985 for $80,000 and it's worth $600,000 at death, the heir's cost basis is $600,000. If they sell it the following year for $615,000, only $15,000 is taxable as capital gain — not $535,000.

For Alabama estates, every asset requiring date-of-death valuation needs a defensible appraisal or market documentation. Real estate should have a formal appraisal dated as close to the date of death as possible. Brokerage accounts have date-of-death statements readily available from the custodian. Business interests and closely held stock require a formal business valuation.

Alabama conforms to federal capital gains rules, so the step-up in basis applies equally to the state return. Failing to document this properly — and instead using original purchase prices from decades ago when selling inherited property — is an expensive mistake.

Note one important limitation for surviving spouses: Alabama is a common law state, not a community property state. If a married couple owned property jointly, only the deceased spouse's 50% share receives the step-up at the first death. The surviving spouse's original 50% retains its historical cost basis. When the survivor eventually sells, half the gain calculation uses the old basis.

What Alabama Executors Need to Gather

Whether or not Form 706 is required, executors managing a 2026 Alabama estate should assemble the following:

For every asset in the gross estate:

• Date-of-death value documentation (bank statements, brokerage statements, real estate appraisals, business valuations)
• Account numbers and institution names for all financial accounts
• Beneficiary designation forms for retirement accounts and life insurance

For the basis step-up calculation:

• Original purchase records for all real property
• Records of capital improvements to real estate
• Historical brokerage statements showing original purchase prices for investments

For gift history:

• Copies of any prior Form 709 (gift tax return) filings
• Documentation of any substantial gifts made in prior years

For portability decisions:

• Current estimate of the surviving spouse's net worth and expected asset growth
• The surviving spouse's own prior taxable gift history

If you're handling an Alabama estate and want a structured document-gathering framework that covers the full tax filing picture — the decedent's final Form 40, the estate's Form 41, the clearance affidavit, and the Form 706 analysis — the Alabama Final Tax & Estate Tax Guide organizes the entire process chronologically.

Quick Reference: 2026 Federal Estate Tax Numbers

For a deep look at what the One Big Beautiful Bill changed specifically — and how it differs from the law that applied in 2024 and prior years — see One Big Beautiful Bill and Estate Tax: What Changed.

The Bottom Line

For the vast majority of 2026 estates, the $15 million federal exemption means Form 706 is a non-event from a tax-payment perspective. But for surviving spouses with meaningful assets, the portability election represents a substantial planning opportunity that expires if the executor doesn't act within 15 months of the date of death. That decision — whether to spend the money filing Form 706 for portability purposes alone — is worth a short conversation with an estate CPA early in the administration process.

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